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However, the economic benefits of deepening regional integration in view of increasing access to global markets would accrue disproportionately to the leading countries in each of these regional economic communities. For regional integration to work best, these leading countries need to take the lead in the integration process. Ethiopia, Nigeria, and South Africa—being the natural leaders of COMESA, ECOWAS, and SADC, respectively, given their sizes (population and GDP)—might have a key role to play in fostering regional production networks throughout Sub-Saharan Africa (box 7.1). The 2018 World Bank report, “Reinvigorating Growth in Resource-Rich Sub-Saharan Africa,” expanded on this idea by suggesting that the region
Box 7.1 Diversifying Production through Regional Cooperation Diversifying an economy is no easy task. Initial phases of diversification in lower-middle-income African economies should rely significantly on strengthening and upgrading existing production and export capabilities from which countries can continuously expand into related higher-value activities. Hence, there is a need for a policy of intensive diversification that builds on existing capabilities. The alternative—required at higher incomes or in response to even lower-cost competitors—is to jump to higher-value production activities. Even if a country is lucky enough to have such activities close to its production base, the jump remains costly and risky. It may require an available pool of facilities and infrastructures, including physical infrastructure; specific human capital; particular expertise on the demand and tastes of destination markets; and easy, cheap access to specific inputs. These initial investment needs can be facilitated by foreign direct investment (FDI) inflows. Regional cooperation by providing economies of scale in production and larger markets increases the region’s attractiveness to FDI. In addition, cooperation can provide an outlet for intermediate goods producers who sell to innovating firms elsewhere in the neighborhood. When Sub-Saharan African exports from 1980 to 2004 are mapped against a global product space of some 800 products (4-digit industries), the Central African Economic and Monetary Community (CEMAC) appears to have only a few options for diversification (wood and its manufactures). Members of the East African Community (EAC) have more options because their exports are more diversified (fruits and vegetables, prepared food, fish, wood and its manufactures, cotton, textiles, low-tech manufactures, metallic products, chemicals, and minerals). Other countries with similar production structures have diversified into such clusters as cotton, textiles, and garments, which currently enjoy preferences under the African Growth and Opportunity Act (AGOA) in the US market. Southern African Customs Union (SACU) members, except South Africa, can gain significantly more than countries in other unions from cooperation in natural resource–based and manufacturing clusters, because they have much easier diversification options driven by the logistics, finance, skills, and infrastructure that reflect their middle-income status. The volume and diversity of exports grow when countries cooperate regionally in terms of economies of scale, greater factor mobility, and lower transportation costs. To achieve this, there is a need to identify industries or sectors of economic activity—and the associated sector-specific infrastructure—to integrate regional markets with improved access to inputs and markets as well as easier mobility of factors (including labor), enabling a more efficient allocation of resources. That effort can complement the general areas of cooperation in regional infrastructure, better business regulations, and a strong judicial system. Source: World Bank 2009.
